2022 IPPS proposed rule seeks to mitigate impact of COVID-19, walks back MS-DRG overhaul

Wednesday, April 28, 2021

The fiscal year (FY) 2022 Inpatient Prospective Payment System (IPPS) proposed rule makes broad efforts to cushion the ongoing impact of the COVID-19 pandemic on hospital revenue and resources. The proposed rule, released April 27, also eliminates sweeping changes to MS-DRG rate-setting finalized in the 2021 IPPS final rule.

Payment data

CMS is proposing a 2.8% payment increase to hospitals that successfully participate in the Hospital Inpatient Quality Reporting program and are meaningful EHR users. Including disproportionate share hospital and Medicare uncompensated care payments, the agency estimates hospital payments will increase by $2.5 billion.

Although CMS typically uses hospital utilization data from the previous FY when setting payment rates for the upcoming FY, the agency believes that wouldn’t be appropriate in this case. The COVID-19 pandemic drastically changed inpatient hospital utilization in FY 2020. However, the agency believes that, due to the rapid pace of vaccinations and the effectiveness of vaccines, there will be far fewer COVID-19 infections and hospitalizations in 2022 than in 2020, according to the fact sheet. Therefore, the agency is proposing to use FY 2019 hospital utilization data, although it is also seeking comment on using FY 2020 data.


CMS is proposing a one-year extension of new technology add-on payments (NTAP) for 14 technologies that would otherwise have passed the two- to three-year NTAP eligibility period. The agency is proposing the extension in connection with its proposal to use FY 2019 data rather than FY 2020 data.

The agency is also proposing to extend the New COVID-19 Treatments Add-on Payment (NCTAP) for eligible discharges through the end of the FY in which the COVID-19 public health emergency ends, unless the product becomes eligible for NTAP.

Market-based MS-DRG policy

CMS finalized a dramatic overhaul of MS-DRG rate-setting in the 2021 IPPS final rule, but the 2022 proposed rule seeks to entirely strike out those policies.

The 2021 IPPS final rule requires hospitals to report the median payer-specific negotiated payment rate by MS-DRG for all contracted Medicare Advantage (MA) payers. Hospitals are required to crosswalk median payer-specific negotiated MS-DRG rates for MA plans to Medicare MS-DRGs on the Medicare cost report for cost reporting periods ending on or after January 1, 2021. The agency stated it planned to use this data to separate MS-DRG rates from hospitals’ cost-to-charge ratio and move to a market-based MS-DRG rate setting policy by FY 2024.

CMS is proposing to scrap both the requirement to report median payer-specific negotiated payment rates by MS-DRG for MA payers and the planned rate-setting overhaul. The agency estimates repealing the reporting requirement will save hospitals roughly 64,000 hours of work.

The proposed rule also includes MS-DRG updates and numerous provisions related to quality reporting and measurement, interoperability, and more. The agency is also seeking feedback on how to meaningfully use data to address inequities in health outcomes.